Support

A cookie is a piece of data stored by your browser or device that helps websites like this one recognize return visitors. We use cookies to give you the best experience on BNA.com. Some cookies are also necessary for the technical operation of our website. If you continue browsing, you agree to this site’s use of cookies.

Marketing Services

Bloomberg Next marketing services allow clients to elevate their brands and extend their reach through our established and trusted expertise, enhanced with engaging event production, appealing design, and compelling messaging.

For Smaller Companies, Quality over Quantity of Disclosure May Be Key

The SEC and market participants have long
considered scaled disclosure for smaller public companies. Within that
discussion, the concept of scaled disclosure has often been equated with less
disclosure. According to members of the SEC’s Advisory Committee on
Small and Emerging Companies, the emphasis on the quantity of disclosure
may be misplaced. The proper focus, according to the committee, should be on
the quality of disclosure that efficiently provides investors in smaller
reporting companies with useful, material information.

The committee met at SEC headquarters Oct. 5, during which SEC Commissioner
Michael S. Piwowar supported the concept of easing the regulatory burden on
smaller companies, but noting that any such revisions should be carefully
considered to avoid unintended consequences. He referred to 19th-century
French economist Frédéric Bastiat, who
wrote of consequences seen and unseen:

A law, gives birth
not only to an effect, but to a series of effects. Of these effects, the first
only is immediate; it manifests itself simultaneously with its cause—it is
seen. The others unfold in succession—they are not seen: it is well for us, if
they are foreseen. Between a good and a bad economist this constitutes the
whole difference—the one takes account of the visible effect; the other takes
account both of the effects which are seen, and also of those which it is
necessary to foresee.

Commissioner Kara Stein suggested that
disclosures should be reformatted rather than scaled. Disclosure should be
“fulsome and accurate” and should be structured to allow small companies to
efficiently get their stories out to the market.

The committee discussion centered on revisions
to Regulation S-K. According to Sara Hanks, committee
co-chair and co-founder and CEO of CrowdCheck,
Regulation S-K is the “bedrock” of the SEC’s disclosure regime. She stated that
“we need to update Regulation S-K and scale disclosure appropriately for
smaller reporting companies. That’s only half the battle, though, because
lawyers need to interpret any regulatory changes consistently with small
companies’ needs. If disclosure requirements are scaled down, lawyers have to
let that happen.”

Gregory C. Yadley,
a committee member and partner in the Tampa office of Shumaker, Loop & Kendrick LLP, described
how materiality must be the starting point for disclosure matters. Smaller
companies can benefit from principles-based reporting, he noted, rather than
prescriptive disclosure rules. For example, he cited the required disclosures
about various board committees. These disclosures by smaller companies are
often not useful because these companies have small boards, and the same
directors sit on most of the committees.

Patrick A. Reardon, a
committee member and owner of The
Reardon Firm in Fort Worth, Texas, urged companies to do more than merely
mark up last year’s report. To get to what is important, Reardon advised
lawyers to ask the CEO and CFO “what keeps you up at night?”

Committee member Annemarie
Tierney, Vice President and Head of Strategy and New Markets at NASDAQ Private Market, stated
that in an age of electronic disclosures, market participants will not read
more than a summary.

Members of the committee also
expressed their support and reaffirmed the recommendations the group made to
the Commission in September 2015. Last year, the advisory committee urged
the SEC to revise the definition of "smaller reporting company" to
include companies with a public float of up to $250 million. That change would
afford a broader range of smaller public companies to take advantage of
exemptions from the pay ratio rule, the auditor attestation requirement and the
Compensation Discussion & Analysis requirement. In June 2016, the SEC proposed rule
changes under which registrants with less than $250 million in
public float would qualify as smaller reporting companies, as would registrants
with zero public float if their revenues were below $100 million in the
previous year. The comment period for those proposals closed in August 2016.

The SEC should also revise its rules to provide smaller reporting companies
with the same disclosure accommodations that are available to emerging growth
companies, according to the committee. These rule changes would provide smaller
reporting companies with exemptions from the requirement to conduct shareholder
advisory votes on executive compensation and pay versus performance disclosure.
Smaller reporting companies would also be exempt from the rules requiring
mandatory audit firm rotation.

The committee also suggested a revision to the SEC’s definition of an "accelerated
filer." The definition should include companies with a public float of
$250 million or more, but less than $700 million. Under this definition, the
requirement to provide an auditor attestation report under Sarbanes-Oxley Act §404(b)
would no longer apply to companies with public float between $75 million and
$250 million.

Finally, the committee asserted that smaller
reporting companies should be exempt from XBRL tagging and from the requirement
to file immaterial attachments to material contracts.

All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.

Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)

Notify me when updates are available (No standing order will be created).

This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.

Put me on standing order

Notify me when new releases are available (no standing order will be created)